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Effective IR: Engage with Investors, Get Honest Feedback

What does it take to have an effective investor relations (IR) team, and how can IR provide value to CFOs and management, as well as investors? For Dexter Congbalay, VP of Investor Relations at Mondelez International, it comes down to direct engagement, listening and trust―internally, with management and the board, and externally, with the investment community. Here, he discusses how he believes IR can provide the most value to the company, current shareholders and potential shareholders. He also offers insights on dealing with activist investors and the importance of building external relationships that elicit the kind of “brutal honesty” that helps senior management understand shareholder perspectives.

Dexter Congbalay

Q: How can IR partner effectively with the C-suite to drive value in the organization?

Dexter Congbalay: I think regular engagement and having open lines of communication are very important. I report to our CFO. In fact, I sit about ten yards from him, and not much further from our CEO. That allows for a lot of informal communication. I speak with Dave (Brearton, executive vice president and CFO) four or five times a day and with Irene (Rosenfeld, chairman and CEO) probably once or twice a day when we’re all in town.

In terms of the value IR delivers, first and foremost, our CFO wants to make sure there’s strong communication with the buy side and that the feedback we get from them is as comprehensive and honest as possible. Having that kind of information from the investment community enables us to make decisions on messaging with a better understanding of the external perspective. That means a priority for me is to be the eyes and ears of what’s going on externally and communicate that back to leadership. Corporate benchmarking and competitor analysis is under my group as well, so that’s another big part of my communication with leadership.

Q: Are there leading practices you follow to help IR work closely with your CFO and the finance organization?

Dexter Congbalay: Don’t worry about organizational layers or protocol and deal directly with the people who have the information you need. We value transparency within the organization, so if IR needs information, it’s pretty easy to get it. I’m part of the financial leadership team, which our CFO runs. The team also includes the finance heads of all the regions who manage our P&L on a regional basis, our controller, treasurer and a few others. If questions come up, there’s no hesitation to contact one another. I also work closely with a lot of our finance people who are not on the finance leadership team.

Q: What are some considerations for IR when it comes to working with board members?

Dexter Congbalay: We have a strong board, with four former chairmen or CEOs, two former CFOs and other leading former senior executives from major global companies, so they’re not shy about giving advice or asking questions. That’s a positive because often their ideas and questions are very helpful to IR. When you have a strong and involved board, it’s important to keep them well informed and up to date. In addition to periodic updates, every three-to-six months I’m asked to give the board an overview of what’s going on in the stock in terms of the buying and selling and the overall sentiment from the Street and investors on where we are today―their views about our targets, what our strengths and weaknesses are, what the general investor perceptions are and what we are doing about it. We also brief the board after every quarterly earnings report, outlining key messages from the earnings call and the sell side’s response. Dave and I work closely with all members of the audit committee on developing the earnings releases because that is where so much of the key messaging is done.

Q: How are you using social media to convey and collect information?

Dexter Congbalay: We’re starting to monitor and communicate via social media, but any material information we put out there has already been announced through other means, such as a press release. Social media may become a bigger part of what we do down the road in terms of getting messages across because I know that the buy side, in particular, is starting to use it a lot more.

Q: In dealing with activist investors, what are effective practices for IR to consider and common missteps to avoid?

Dexter Congbalay: First, you’ve got to engage with them at some level, whether through IR or management, depending on prior interaction or relationships. A mistake many companies make is to ignore activist shareholders for as long as possible. Instead, try to have a discussion with them as soon as possible, to understand how they perceive the company, what they are looking to have the company accomplish that the company isn’t doing or are not communicating well to shareholders, and why. If you put off engaging with the activists, it gives the impression you’re stonewalling, that you’re entrenched and not open to new ideas. Perception becomes reality in a lot of cases and that just emboldens the activists.

At the same time, reach out to your major shareholders, to get the facts out there about how you’re managing the company. Be transparent about what management and the board think about the activist’s views—what you agree with and what you might not agree with. More importantly, you have to listen. You want to understand your major shareholders’ take on the situation because the activist will be having conversations with them, too, and it’s critically important to know whether they believe, or even agree with, what the activist is saying. It’s also imperative that major shareholders understand what you have been doing in regard to the issue the activist is focusing on.

After that initial outreach and intelligence-gathering, IR should work with management on crafting the message to explain the company’s response, through earnings calls, investor conferences and face-to-face meetings with major investors. The idea is to get the facts and your key messages across, but again, it’s more important to listen, be transparent by answering their questions, and encourage them to be brutally honest in terms of what they think about your approach, about management, about the board. It might not be what you want to hear, but you need to hear it if that’s the sentiment that might be going around. For meetings with some of our shareholders, we found it helpful to bring at least one board member. It’s useful because the board members hear firsthand what investors are thinking, and investors have the opportunity to understand the board’s view.

Q: What can IR do to help bridge the gap that might exist between management’s and shareholders’ perceptions of an organization’s value?

Dexter Congbalay: It can be hard to avoid a value gap because management is working with much more complete information than analysts on valuing the company. Some value-creating actions the company is taking may be too nascent to communicate externally. IR can, however, point investors toward those nascent areas by saying, “Here’s what we’re looking at in terms of the broad opportunities.” It’s a balancing act, because you have to make sure you don’t cross that material disclosure line.

Q: How do you interact with both the sell side and the buy side?

Dexter Congbalay: My main concern has always been how the buy-side analysts are going to react to our earnings or any major event because they’re the ones who actually invest their dollars. With both groups, the key is establishing a relationship based on trust and honest communication. I go out of my way to assure analysts and our big shareholders that if they have feedback they want to make sure gets to our CEO or CFO, but don’t want it known who it came from, I will not identify them. That’s built up trust, and they do tell me the brutally honest things when they’re not happy. Leadership knows I’m not going to breach that trust; otherwise that valuable candor dries up quickly, as well it should.

Q: One of your goals is to expand Mondelez’s investor base internationally. What are you doing to meet that objective?

Dexter Congbalay: A lot of non-U.S.-based investors come here to meet with us. I also spend two to three weeks a year in different cities, primarily in Europe, and lots of time on the phone with people in the investment community outside the U.S. If you’re trying to expand the international investor base, you can’t visit just London. For example, you have to go to Frankfurt, Amsterdam and Paris, too, as its investment community has grown over the last 10 years.

The line of questioning from the investment community in Europe tends to be different than it is in the U.S. They tend to be focused more on long-term potential, strategy and return on invested capital metrics. But I find that the time frame required to attract Europeans to invest in the company’s stock is longer than in the U.S. In Europe, particularly on the continent, investors might study the company for six to nine months, maybe even a year, before they actually invest. But when they do, they often stay in for five or more years. In my experience, Australia also has a lot of long-term value-based shareholders, and we speak to the investment community there quite often. So for an IR professional who wants to grow the investor based outside the U.S., you will want to cultivate relationships, but know that there’s a lot of hard work and travel involved.

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